Landlords, house flippers enjoying market

Tom Detelich and Ken Bernhard don't know how long they'll be able to continue ride the wave at the bottom of the housing market.

But the business partners, who together own Grandview Capital LLC, of St. Charles, believe that, for now and the foreseeable future, they have struck upon a way to flip their fortunes.

For years, Bernhard, as president of St. Charles-based SeBern Homes, built new houses in Kane County and elsewhere in Chicago's suburbs.

But as the market crashed, Bernhard paired with Detelich, a former real estate banker, to launch his real estate business in a new direction. While the market for new homes in the region had all but dried up, the market was flush with so-called distressed properties:

Houses that had entered foreclosure and could be had for half or even less of what they would have fetched on the market two to three years ago.

And so, after acquiring a few properties on their own, Detelich and Bernhard created Grandview Capital, a business focused almost exclusively on purchasing foreclosed homes at rock-bottom prices, renovating those homes and then reselling a short time later at a profit.

The one-time new home builder and real estate banker had launched new careers as house flippers.

"There is certainly more than enough to keep us both busy, full-time," Bernhard said. "We've still got a couple of homes that we're building (at SeBern Homes), but this is my business now."

Across the region, the abundance of distressed properties have attracted many such investors to the local market, observers said.

From September 1, 2009, to March 16, 2010, for instance, more than 1,200 homes were foreclosed upon in Kane County, said Scott Berger, Kane County's community development program manager.

In that time, most of those houses came to be owned by a bank or lender that foreclosed upon the home's mortgage after moving through the so-called sheriff's sale: A court-ordered transfer of the property to a bank or some other buyer.

"We've been curious, too," Berger said. "We wanted to know what banks were holding the most real estate in the county.

After examining the county's sheriff's sale results, Berger said Deutsche Bank emerged as the top holder of bank-owned real estate, with 100 foreclosures in the period from September to March. They were followed by Wells Fargo with 99; U.S. Bank with 91; Chase Home Financial, 70; and Country Wide Home Loans, 65.

Rounding out the Top 10 were: HSBC Bank USA (60), Citi Mortgage (59), JP Morgan Chase Bank (43), INDYMAC Bank (40) and National City Bank (33).

However, the banks had company at the sheriff's sales.

A review of records filed with the Kane County Recorder's Office reveals that a number of other investors, both individuals and corporations, have also scooped up sizable amounts of distressed real estate in Kane County.

Some of the leaders in the market have included Detelich and Bernhard's Grandview Capital. Since December 1, 2009, Grandview has acquired 32 properties in Kane County through sheriff's deeds — the document issued by the recorder's office to note a property sold under court order to repay an outstanding debt.

They were joined by a group of corporations together known generally as Mass Consumption LLC. Headed by real estate investor Joshua Blank, president of Robert Anthony Real Estate of Geneva, Mass Consumption has taken ownership of 27 Kane County properties through sheriff's deeds from Sept. 1, 2009, to May 17, 2010, according to records kept by the Kane County Recorder's Office.

However, Mass Consumption's list of acquisitions swells to 51 in that time period when the list includes distressed properties acquired from banks and other owners.

Blank estimated that his company has acquired about 150 distressed properties in the last 12 months in Kane County and surrounding counties, though much of his attention has been focused on Elgin, Aurora and Carpentersville.

Of those, a large number were bought from banks. And many, he said, were renovated and "flipped," sometimes for large profits.

"We might be buying some of these properties for as little as $40,000 or $50,000, sinking some money into them and then selling them for $90,000 to $100,000," Blank said.

Of course, some of the homes Blank and his associates will choose to hold and rent for a few years, to generate cash from the property until market conditions improve. He estimated about a third of his acquisitions end up as rental properties.

"This is a really great time for us, no matter what we decide to do with these places," Blank said.

Large incorporated investors like Mass Consumption have certainly come to hold sway in the market for foreclosed property, said Deb Seitz, president of the County Land Company in Campton Hills.

She noted that many who worked in the real estate business before the market collapse have reinvented themselves in the current market, switching to home flipping or becoming landlords to not only stay afloat, but thrive.

She said it is becoming increasingly common to find home builders who rode the housing boom before 2008 now switching gears, like Bernhard, to become foreclosed property investors.

A review of documents from the Kane County Recorder's Office shows that a number of those formerly building homes in the area, including some that led such notable local home building businesses as Neumann Homes and B&B Enterprises, have entered the distressed properties investment market in recent months under new corporate aliases.

"When you're in the real estate business, you have to be flexible," Seitz said. "This is what I tell people to do all the time: If you have the ability, get into flipping the houses on your own. If you don't have the ability, partner with someone who has what you don't — either skill or money — form a corporation and buy houses. It's what you have to do."

Detelich said Grandview Capital has not lacked for business since entering the distressed properties market last fall. The business continues to take advantage of a ready supply of foreclosed homes, particularly in cities like Elgin and Aurora, and a supply of those looking to claim a good deal on a newly renovated home.

He said Grandview sees the business model as a win, all the way around. Communities and neighborhoods are stabilized and "eyesores" are renovated. Homeowners find the affordable housing they seek. And the investors realize some profit.

"We have a profit motive, of course," Detelich said. "But it's also an important part of our business to buy a home in a neighborhood where the home has become an eyesore, bring it up to the standard of the neighborhood or better and then sell it to someone who is looking for an affordable property to own."

While large investors continue to gobble up foreclosed properties by the dozens, the market is also replete with individual investors and others looking to buy distressed properties by the ones, twos or threes at a time.

Seitz said she has tried to acquire and flip "two or three houses a year" since the market crashed.

"There are a great number of houses out there right now," she said. "And right now everyone's trying to get in on it.

"It's a feeding frenzy."

Just how long the market will continue to offer such opportunities is anyone's guess, however.

Seitz said she sees strong opportunities for investment continuing in cities like Elgin and Aurora for at least a couple more years. And while foreclosure activity appears to have lessened in the Tri-Cities, she said another round of foreclosures could be in the offing, as homeowners' attempts to use loan modifications to hang onto their homes begin to fail.

Detelich and Bernhard said they believe their current business model will remain viable for at least the next year, so long as the supply of distressed properties does not dwindle too rapidly.

"We will have to evolve eventually," Detelich said. "But what we have right now is working very well."